Independent and Affiliated Analysts: Disciplining and Herding
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2017-07-01
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<jats:title>ABSTRACT</jats:title> <jats:p>The paper investigates strategic interactions between an independent analyst and an affiliated analyst in the context of issuing stock recommendations. Compared to the independent analyst, the affiliated analyst has superior information, but faces a conflict of interest. I show that the independent analyst disciplines the affiliated analyst's biased forecasting behavior. Meanwhile, the independent analyst sometimes herds with the affiliated analyst to improve his recommendation accuracy. Because of the affiliated analyst's conflict of interest, the value the independent analyst expects to derive from his ex post herding option is endogenous and can motivate him to acquire more information up front. As a result, herding and disciplining not only coexist, but also mutually reinforce each other. That is, there is an endogenous complementarity between the independent analyst's ex ante disciplining role and his ex post herding behavior in equilibrium.</jats:p>
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Xue, Hao (2017). Independent and Affiliated Analysts: Disciplining and Herding. The Accounting Review, 92(4). pp. 243–267. 10.2308/accr-51631 Retrieved from https://hdl.handle.net/10161/32347.
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Hao Xue
Hao Xue is an Associate Professor of Accounting. Prior to joining Fuqua, Professor Xue was an Assistant Professor at New York University, Stern School of Business. Professor Xue's research applies analytical models to accounting practices and institutions that conventional thinkings may have difficulties explaining. In a recent work, he studies the effect of investors' private word-of-mouth communications on firms' information environment and how firms adjust their disclosures in response. Professor Xue teaches Managerial Accounting.
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